Adam Smith’s famous description of a pin factory was used to demonstrate: a. the

Question

Adam Smith’s famous description of a pin factory was used to demonstrate:

a. the concept of elasticity

b. the poor working conditions inside factories during the industrial revolution

c. the division of labor and its role in productivity

d. the role of interest rates in a free market

Assume the production of a good involves four stages of production. If the final retail price of this good is $20, it must be the case that the sum of all stages' “value added” equals:   

$4

$5

$20

d. $80

One of the shortcomings of using GDP as a measure of social welfare is that it:

double counts the value of intermediate goods

excludes the value of goods and services that are not exchanged in markets

includes the value of goods and services that are not exchange in markets

d. does not include the value of residential homebuilding construction

GDP can be written as:

C + I – G

C + I + G + NX

C + I + NX – G

d. C + NX – I – G

In the context of the National Income and Product Accounts (NIPA), the value of all expenditures (or, output) in the economy must be equal to the value of:

all household consumption

all investment

all government spending

all income

a.

$4

b.

$5

c.

$20

d. $80

One of the shortcomings of using GDP as a measure of social welfare is that it:

a.

double counts the value of intermediate goods

b.

excludes the value of goods and services that are not exchanged in markets

c.

includes the value of goods and services that are not exchange in markets

d. does not include the value of residential homebuilding construction

GDP can be written as:

a.

C + I – G

b.

C + I + G + NX

c.

C + I + NX – G

d. C + NX – I – G

In the context of the National Income and Product Accounts (NIPA), the value of all expenditures (or, output) in the economy must be equal to the value of:

a.

all household consumption

b.

all investment

c.

all government spending

d.

all income

Explanation / Answer

(1) (c)

Adam Smith's theory emphasized the importance of division of labor and its contribution to productivity increase.

(2) (c): $20

Sum of value added in all stages of production is its retail price.

(3) (b)

GDP ignores non-market goods and services.

(4) (b)

GDP = Y = C + I + G + NX

(5) (d)

Value of all expenditures or output = Value of all incomes

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